Private information on 100,000 armed forces personnel has gone missing.
The data, which includes names, addresses, passport numbers, dates of birth and driving licence details of servicemen in the army, navy and RAF, was on a hard drive that has been mislaid.
The drive also contains next-of-kin details, as well as information on 600,000 potential services applicants and the names of referees.
And officials admitted it may also include some bank account details.
The drive was in the care of EDS, the Ministry of Defence's main IT contractor.
It was found to be missing last Wednesday when EDS conducted an audit.
MPs have responded to the admittal by demanding changes.
"This is yet another example of the serious implications the loss of personal data can have for the general public", said Tory MP Nigel Evans, who chairs the all-party parliamentary group on identity fraud.
"The loss of such important information ... will be music to the ears of fraudsters everywhere. It is vital that there is a cultural change across the public sector with all professionals aware of their responsibility to protect and manage personal data."